Do You Need 20% Down to Buy a Home?

Putting 20% down on a home is a “rule” that’s been around forever. But today, buying a home is a lot more flexible. Your down payment amount really depends on the type of loan you choose. And good news: there are several loan options, down payment assistance programs, and funding sources that can help you achieve your homeownership goals.

Whether you’re buying your first home or moving on to your next, let’s look at what’s required and the many possibilities that can help you unlock the door to your new home.

Understanding the 20% Down Payment Standard

The 20% down payment guideline dates back to when lenders wanted extra assurance that buyers were financially committed. Putting down 20% also helps you avoid added expenses like mortgage insurance and can reduce your monthly payments. But it’s not a requirement. Many buyers successfully purchase homes with much smaller down payments, leaving more money in their pockets for other things like sprucing up the new space or saving for other life milestones.

Do You Actually Need 20% Down?

The truth is, today, most people don’t need to put 20% down to buy a home. Thanks to loan programs like FHA, conventional loans with low down payments, and VA loans for veterans, you can often buy with as little as 3% or even zero down. That means more prospective buyers can enter homeownership sooner and build equity faster.

Bottom line: Don’t let the 20% myth hold you back. With thoughtful planning and the right loan, your next home could be closer than you think.

Down Payment Minimums by Mortgage Type

You’ve been building your savings, and now it’s time to figure out how much you need for your down payment. While 20% is often seen as the benchmark, many mortgages require far less. Let’s look at the most common types of home loans and programs and what each one typically requires.

Benefits and Potential Drawbacks of Putting Less Than 20% Down

Putting down a smaller down payment can speed up the home-buying process, but it also comes with a few trade-offs. Here’s a look at the benefits and drawbacks.

Pros

Get Into a Home Sooner

Low down payment loans—sometimes as little as 3%, or 0% for eligible veterans—let you start building equity years earlier than if you had to save a full 20%. These options are often tailored for first-time buyers or those with modest savings, making homeownership more attainable, and helping more people qualify without being priced out of the market.

Keep More Cash On Hand

By putting less down, you maintain more of your savings for emergencies, home improvements or other essential expenses, giving you greater financial flexibility.

Potential Drawbacks

Higher Monthly Costs Due to PMI

If your down payment is under 20% on a conventional loan, you’ll be required to pay mortgage insurance until you reach a sufficient equity threshold. This increases your monthly costs.

Less Equity Cushion

Starting with a low down payment means you build equity more slowly. If home values decline, you could be at greater financial risk, especially if you go underwater (owing more than the home is worth).

More Interest Over Time

A larger loan balance means you’ll pay more total interest over the life of the loan, even if your rate is competitive.

Strategies to Offset a Smaller Down Payment

So you've done your best to trim expenses and save more, but you're still falling short of the minimum down payment requirements. Explore these strategies and practical solutions that can make homeownership more within reach.

Down Payment Assistance

Down payment assistance programs offer financial support to help buyers cover part or all of their down payment.

Employer-Assisted Programs

Some employers offer down payment assistance as an employee benefit. Check with your Human Resources department to see if your company offers this.

Community Service Programs

Local and federal programs, like HUD’s Good Neighbor Next Door, offer down payment assistance to help community service professionals live in the areas they serve. Police officers, firefighters, public school teachers, health care workers, and social workers are just a few types of professions that may be eligible for down payment assistance.

Local Down Payment Assistance From Your Community, City, or State

Many states, cities, and local communities offer grants or low-interest loans to help with down payments, closing costs, or both. These programs are often funded through federal grants but tailored to local needs. Some even provide incentives for buying or renovating in targeted neighborhoods to support community growth. Often, the assistance is forgivable if you remain in the home for a set number of years, making it a true grant.

Demographic-Based Down Payment Assistance

Certain groups may qualify for specialized programs based on demographics. For example:

• Native American Homeownership Initiative

  Through the Native American Homeownership Initiative, the Federal Home Loan Bank of Des Moines provides up to $25,000 per eligible household to help with down payments, closing costs, home repairs, and more. To qualify, at least one adult member of the home-buying household must be an enrolled member of a Federally Recognized Tribe, a member or shareholder of an Alaska Village or Regional Corporation, or a Native Hawaiian eligible to reside on Hawaiian Home Lands.

• Programs Helping Disabled Homebuyers

  From government agencies like the HUD Homeownership Voucher Program to private charities like Habitat for Humanity, there are numerous ways for people with disabilities to get help along the road to homeownership.

Keep in mind that many buyers find success by combining multiple programs or exploring options specific to their location and situation. Your lender or real estate agent can be a great resource for helping you understand what assistance programs may be available to you.

Alternative Funding Sources

Besides formal assistance, buyers can tap into personal financial resources to help meet down payment requirements. These are not assistance programs, but can be options worth exploring.

Gift Funds

Funds gifted by immediate family members can be a significant help. Lenders require a “gift letter” confirming that the funds are a gift, not a loan. This letter should include:

• Donor’s name, address, and phone number
• Relationship to the buyer
• Gift amount
• Date the funds were transferred
• Property address being purchased

Lenders may also ask for proof of the donor’s funds, like a bank statement. Be sure to confirm with your lender if gift funds are allowed under your loan program and the timing for providing them.

Borrowing from a 401(k)

If you have a 401(k), you may be able to borrow or withdraw funds to help with your down payment. Here’s what to keep in mind:

• Borrowing lets you use up to 50% of your vested balance or $10,000 (whichever is greater), up to a maximum of $50,000. Loans must be repaid with interest.
• Early withdrawals (cash-outs) may incur penalties unless you qualify for an exception, such as a first-time homebuyer exemption.

Always review the terms carefully and consult with a financial advisor or your plan administrator before accessing retirement funds.

Low Down Payment Loan Programs

Some loans are specifically designed to have low minimum down payments. These programs often have more flexible credit requirements and typically allow the use of assistance funds to help meet down payment needs.

FHA Home Loans

An FHA home loan is a mortgage insured by the Federal Housing Administration. It’s designed to make homeownership more accessible, especially for first-time homebuyers or others who prefer a lower down payment. FHA loans typically have broader qualification requirements and down payments as low as 3.5%. However, FHA loans require mortgage insurance regardless of your loan-to-value ratio.

Fannie Mae’s HomeReady^® Mortgage

With the HomeReady^® program, borrowers can make a down payment as low as 3% of the cost of the property, and they may use funds from other sources (including gifts, tax refunds, and down payment assistance programs) to make the minimum down payment.

If your down payment is less than 20% of the cost of the home, you will have to pay mortgage insurance. The HomeReady^® program provides a reduced mortgage insurance requirement. In many cases, this will result in monthly cost savings when compared to a standard conventional or FHA loan with mortgage insurance.

Freddie Mac’s Home Possible^® Mortgage

This program offers loans with down payments as low as 3% and is not limited to first-time home buyers. With flexible down payment and PMI options, Freddie Mac’s Home Possible Mortgage can allow lower-income buyers to benefit from stable monthly payments on fixed-rate mortgages.

USDA Rural Development Loans

If the home you want is in an eligible rural area as defined by the USDA and you meet the income limits, you may be able to use this program to purchase with no down payment. The U.S. Department of Agriculture’s rural development mortgage guarantee program is typically only for first-time buyers, but there are occasional exceptions.

Home Buying Help for Military Members and Veterans

Many government programs and nonprofits offer low- or no-down payment options, competitive mortgage rates and help with mortgage closing costs specifically for veterans, active military members and their families.

VA Loans

If you’re looking to purchase a home with no down payment while also avoiding mortgage insurance (MI) payments, a VA home mortgage may be exactly what you’re looking for. VA loans are designed to make homeownership more attainable for veterans and active military by offering more relaxed requirements with great affordability. VA Loans are guaranteed by the U.S. Department of Veterans Affairs and offered by independent lenders, like Pennymac.

The program offers these benefits not only to veterans, active military and their spouses, but also to Reservists and members of the National Guard who served for more than six years.

Military Housing Assistance Fund (MHAF)

In addition to loans, servicemembers can access funds from the MHAF to help cover closing costs, reducing the upfront cash needed to complete a home purchase.

Help For Disabled Veterans

The Veterans Affairs’ Specially Adapted Housing grant program offers funds to servicemembers and Veterans with certain permanent and total service-connected disabilities toward a home purchase or remodel. In addition, the Homes for our Troops nonprofit is available to help permanently injured vets build, buy or retrofit their own homes.

Determining the Down Payment That's Right for You

Choosing the right down payment depends on your financial situation and goals. While 20% is a good goal and often recommended to avoid mortgage insurance, many loan options allow for lower down payments. Whether you want to save cash upfront or reduce monthly payments, to a Pennymac Loan Expert to discuss your options and help you find the down payment that fits your needs.

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